Systemic Risks From The Rise of Crypto

[Longnose]

12 hours ago, Simba said:

There's a reason podcast on 'We Study Billionaires' and there was a crypto guru talking up bitcoin/crypto, and he sounded like classical person who is caught up in the euphoria / market sentiment, and not about the fundamentals. I think this is a good example of the market sentiment on this topic. 

 

 

I was listening to TIP not to long ago and it auto played into this session. 

https://www.theinvestorspodcast.com/bitcoin-fundamentals/bitcoin-full-nodes-instant-settlement-on-the-lightning-network-w-btc-sessions/

 

Normally I hear something start talking about BTC and I turn it off. However, I had recently taken a small amount of money and said you know I can't call the future of crypto but I do believe it will lay the foundation of the future so I'm just gonna spread this small amount of money across a handful of coins and let it ride. I then listened to this podcast. He dove deep into the back end of how transactions are occur with BTC. I admit that much of it went over my head. But It also further cemented my belief that this area is still the future of the world's financial systems. 

 

Not to say there isn't a bubble and who knows maybe we will collapse 99% of the crypto space. But if that does happen it will likely just be an incredible opportunity to add more money. The amount of money i have in crypto is very small in regards to my whole portfolio but I see more value in BTC at this point that gold. 

[TwoCitiesCapital]

What everyone should keep in mind, particularly with Bitcoin, is much of its life is spent in a "bubble". And yet, even if you bought right at the top of prior bubbles, you always had a positive return within 3 years, and fantastic returns by year 4. 

 

That may not continue into perpetuity, but it's new enough with a high enough growth rate that I imagine it will be true in the intermediate term. 

 

Just DCA w/ a 3-5 year time horizon and you'll do just fine even if it's a but rich relative to it's current fundamentals (as I feel it is today). 

[Fly]

Classic Tulips:

 

 

 

 

But....wtf???

 

Edited November 7, 2021 by Fly

[SharperDingaan]

Sure ... to the dinosour without much runway left (or a short investment horizon), it's a tulip.

But .... If you're going to have to live with the underlying blockchain technology - it's a little bit different.

 

BTC has a fixed limit of 21M token, after which the cost of the processing is paid directly by the buyer/seller vs a release of new coin. There are a variety of views on just how 'hard' the 21M cap actually is ..... most expect an 'adjusted' cap at around 23-24M, re all that coin tied up in accounts where the key has been lost.

 

When you have to pay for your transaction and the cost is in the hundreds, is a BTC likely to still be trading at USD 60K+ ???

The more BTC ETF's the greater the possibility 

 

SD

[TwoCitiesCapital]

15 hours ago, Fly said:

Classic Tulips:

 

 

 

 

But....wtf???

 

 

Try charting Amazon stock in a similar fashion. 

 

It's not a bubble. It's a secular growth trend. Which is why every bottom has been higher and every top has been higher. 

Edited November 7, 2021 by TwoCitiesCapital

[Fly]

8 hours ago, TwoCitiesCapital said:

 

Try charting Amazon stock in a similar fashion. 

 

It's not a bubble. It's a secular growth trend. Which is why every bottom has been higher and every top has been higher. 

 

Agree 100%, that's why I included the 2nd picture. Bitcoin would have gone to zero by now if it was just a bubble. 

[Vish_ram]

I wrote this several months back and shared it with my friends: (some of you may find it useful; i've tiny amounts of btc, blok, mstr)

 

----------------------------

First a disclaimer, I’m not an expert on cryptocurrencies. Some popular cryptocurrencies are Bitcoin, Dogecoin etc. This write up is more a stream of consciousness than a primer. I have gone through the five stages of acceptance with regards to cryptocurrency – Denial, Recognition, Resignation, Acceptance and Embrace. I only own a token amount. 

    Cryptocurrencies are undoubtedly the product of the internet. Let’s delve into the basic definitions of certain terms to understand this phenomenon. 

Cryptography – this is a technique or a mechanism to send information securely. The tools used for this purpose have changed over the centuries. In the crypto currency world, they might employ computational methods that use public & private keys to keep information secure. The exact mechanism of how the cryptography is utilized is beyond the scope of this article. 

Currency – is a medium of exchange for goods and services. A currency can be anything that is legally blessed by those in power. In olden days, seashells, salt, gold coins etc were used as a currency. In modern times, the paper currencies are popular. Sometimes a currency may not have any inherent value other than to be used as medium of exchange. A gold coin when used as a currency may find alternate uses as a raw material for making jewelry. A currency like Bitcoin is a de-centralized one (US dollar is printed by US Treasury and Federal reserve controls the money supply). It means that no single authority controls it. 

Asset – something that is of a value. A currency can be an asset, it is however a depreciating asset. The value of almost all currencies lose value over time due to inflation. Some good examples of an asset are Land, Cattle, Automobile, Patent, Trademarks, stocks, bonds etc. Some of these assets appreciate in value when measured in terms of the local currency. A land may appreciate in value due to inflation or due to more productive uses (cultivation, building a factory, residential or commercial buildings). 

 

Why does the world need a cryptocurrency like Bitcoin (BTC)?

1)    Bitcoin was originally created as a currency to facilitate ecommerce. The current payment network used by the likes of Mastercard, Visa etc. are just archaic, complex & expensive. Think of the difference between Email (Bitcoin) and Snail mail (legacy payment networks). Instead of taking days for money to be transferred using current payment network, you can transfer money using Bitcoin in a matter of seconds. You can use much lower denominations using BTC. One BTC = 100 Million Satoshi. You can send micropayments, a few Satoshis (fraction of a penny) to another party. 

Bitcoin as a currency is a failure at the moment as the current infrastructure cannot handle the transaction volumes that are routinely handled the current payment networks. At the moment, the rationale for adopting bitcoin has shifted from currency to a store of value, i.e. an asset. 

2)    Bitcoin as an asset. How do you value an asset? John Burr Williams wrote the seminal book “The theory of investment value” to determine the intrinsic value of any asset. He gave this cute poem.

A cow for her milk
A hen for her eggs,
And a stock, by heck,
For her dividends.
An orchard for fruit,
Bees for their honey,
And stocks, besides,
For their dividends.

Fundamentally, a Bitcoin (or any other cryptocurrency) does not produce any dividends or income. Unlike a physical object that is unique, there is no copyright behind the Bitcoin code. It is all open-source. I can theoretically copy the entire Bitcoin code and create a new cryptocurrency called BiteMecoin (Bytecoin is already taken) and release it into the world. How does one cross the bridge to embrace Bitcoin as an asset? Look no further than the art world to understand this human psychology. There are thousands of poor & hungry artists who toil in total obscurity. A few of them get discovered first by art critics and then embraced by rich folks who act as their patrons. As the artist gains in popularity, the price of their artwork exponentially goes up. It is even better if they are dead as there would be no new artwork in circulation. A limited supply & increasing popularity coupled with the firm belief that an artist’s work will gain in value creates a self-fulling prophesy. Out of tens of thousands of budding artists, the system can only support a few (Rembrandt, Picasso, Van Gogh’s etc.). Even though we have hundreds of cryptocurrencies, in the long run only a few will survive (probably BTC, ETH & Doge)

The Bitcoin has a limited supply (21 Million in total supply by year 2140, ~18 Million in current circulation), growing popularity because of first mover advantage and enough servers worldwide to mine the bitcoin. The miners provide the physical computer servers that keep records of the transactions. The miners are rewarded in Bitcoins for performing such a service. If you have a new cryptocurrency and not enough people to provide the infrastructure, then it would die in its infancy. 

Then there is this Metcalfe’s law. Metcalfe's law states that the value of a telecommunications network is proportional to the square of the number of connected users of the system. As you add more and more users to the Bitcoin system, the value of the network and hence the Bitcoin as an asset will rise in value. We are in the early innings of Bitcoin adoption. The hedge fund, pension fund and other institutional money are slowly embracing Bitcoin. It’ll be decades before it is fully embraced. Gold is traditionally used as an asset to provide protection against inflation. The value of Gold in circulation is $7.5 Trillion. BTC is valued today at $1.04T. 

In many ways, Bitcoin is infinitely more valuable than Gold. You cannot send Gold over the internet, nor use it for ecommerce. You cannot exchange one millionth of an ounce of Gold for a cup of coffee. The transportation, storage & protection costs of gold are very high. 

3)    The real value of a de-centralized asset/currency. One of the fundamental forces of the human nature that has shaped our destiny in the last several centuries is the yearning for Freedom. This feeling is so universal and transcends race, culture, time and sex. In politics, Kingdoms that have lasted centuries have been overthrown. The suffragettes fought for women’s right to vote. The Freedom has brought us democracy & right to self-rule. The transition from oppression to freedom has never been smooth. The US fought the British to gain independence and civil war to free slaves. 

The one freedom that even the citizen of a democratic country does not have is the control over the value of currency and its purchasing power. In USA, the central bank “Federal Reserve Board” (FED) control the monetary policy. Have you ever wondered why the interest rate you got in your savings and checking accounts have dropped repeatedly in the past decade? In early 2000’s, I used to receive 5% interest in my ING Savings account. The FED has the dual mandate – maintain low inflation and adequate unemployment rate. In order to accomplish the dual mandate, the FED has several policy tools at its disposal. One such tool is the ability to control the interest rate charged by one bank to the other (Discount rate). They also control the reserve requirements of banks. The rates set by FED impact indirectly the rates you pay for mortgage, student loans, auto loans and several others. Their toolset has been greatly expanded in recent years to give greater autonomy to control the interest rate and the value of the currency.   

An elderly couple living on a pension (fixed income) in Any Town, USA has no say when they get punished with low interest rates in their savings account. When a country wages a war by printing currency (it could be USA or a tinpot dictator in Africa), the citizens have no control to stop the depreciation of their currency or other assets. This is a currency/asset oppression that no one wants to talk about. A cryptocurrency like Bitcoin is an anti-dote to such currency oppression. Several decades ago, US followed the Bretton woods system that pegged US dollar to Gold. The system ultimately collapsed as nations wanted to pursue an inflationary monetary policy. In US, the expansion of monetary base in relation to GDP is just astounding. In plain terms, the value of your currency has depreciated.

An inflationary monetary policy has many winners and losers. The Government is a major winner as their debt obligations are paid out in inflated currency. The equity (stock) owners benefit as they borrow today and pay it off in the future with money that is worth less. The savers, pensioners, collectors of social security etc. are the losers. The inflation erodes the purchasing power of the money that they hold. 

Now imagine a monetary system that is based on Bitcoin. The Governments tax receipts (income) and spending (expenses) will be in BTC. The ability to inflate will not exist. US Treasury has to balance the book. The Federal deficit will be zero. The people will have more say when a Government embarks on unnecessary wars or on some boondoggles. Today, in several countries sporting high inflation (Venezuela, Zimbabwe etc), the citizens are quickly converting their fiat currencies to Bitcoin to protect its value. A de-centralized currency brings power back to the owners of capital. This can reshape the politics and society in ways we cannot imagine now. 

  
What is the future of cryptocurrency like Bitcoin (BTC)?

    If the major powers (particularly in the west) do not ban it, then the future is very bright. In the senate, an astute Senator gave a speech asking for banning BTC as it threatens the hegemony of USD. Bitcoin will gain traction as an asset. Once the technological hurdles are crossed, the use as currency will become mainstream. There are cafes in the world that accept Bitcoin. There are tens of thousands of ATM machines that accept them. The value of BTC will gain as world GDP expands, network effects multiply, and fiat currencies get displaced. Now many companies like MicroStrategy, Square etc. are keeping their treasury cash in BTC. I won’t be surprised if it crosses $1MM in less than 15 years. The prevailing wisdom is that you should keep at least 1% of your total assets in a crypto like BTC.

What are the risks of cryptocurrency like Bitcoin (BTC)?

    The cryptocurrency can be hacked. The underlying technology called blockchain can become obsolete and get replaced. It has been estimated that quantum computers can use public key to find out the private key of BTC and can impact around a third of the value of BTC. A new cryptocurrency of the future that has better attributes can win the popularity contest and people may just abandon the existing ones. 
 

[Vish_ram]

To back to Parsad;s original question about systemic risk:

 

Crypto undercuts Fed's ability to inflate or provide liquidity. Fed's tightening action for cooling down is like pulling on a string. The transmission effect is immediate and direct. The Fed's action post or during recession is like pushing on a string. The effect takes a while to trickle down. Now imagine a case when whole country is gung-ho on crypto and Fed is injecting liquidity. This inflates, but more assets go into crypto to protect against inflation. This reduces Fed's power. The "Screw savers, reward risk takers" mode to prop up the economy is undercut. So economy may takes a whole lot of time to recover. This is a systemic risk.

 

Huge concentration of (crypto) assets in hands of few folks creates income inequality. 

 

If transfer of wealth to low-tax country is only a click away, Govt's ability to tax the rich is undercut. 

 

 

[Dave86ch]

Bitcoin is simply the beginning of the possibility of owning your digital stuff: money, data, identity throught the private key. Nakamoto solved the double spending problem, this become the solution of many problems arised in our increasingly digital existence.

Ethereum is a decentralized complete turing machine, similar to Bitcoin but with way more use cases, this complexity bring some more fragilities.

Is it a bubble? Imo Yes.

I written an article sometime ago of the general concept of bubble, I think Soros reflexivity is a good explanation of what we are living today.

 

Edited November 8, 2021 by Dave86ch

[aws]

I heard the story about the Squid Game token a week ago. People with no affiliation to a piece of intellectual property pitch a game based on and named after it, raise millions of dollars from speculators, they steal it all in a rug pull and disappear. The website and social media accounts are gone, the project was always a scam and is not going anywhere. I thought that was the end of the story. People get scammed out of a few million dollars here and there all the time in the real world through ponzi schemes and whatever, so nothing too remarkable that it happens in crypto as well.

 

On a whim though, I checked the market on that token today, and it's traded over $1 billion worth in the past three days and is sitting on a market cap of over $250 million still. That's for a project that everyone already knows was a scam and will never be worth anything. It would be like people rushing to buy shares in Madoff after he's already in handcuffs. I could understand maybe there still being some tiny residual market like there is for empty shell companies, but $250 million and on such high turnover is just wild.

 

 

[Gregmal]

The idea that something needs to generate cashflow in order to have value is one of there stupidest out there. It just needs to be desirable to others and scarce enough to produce a supply/demand imbalance. 

 

This is an $18M watch

 

https://www.businessinsider.com/paul-newman-rolex-daytona-just-sold-17-million-world-record-2017-10

 

Just because you dont think its worth that doesnt mean its not worth $18M. Same applies everywhere else. The biggest problem people create for themselves when investing(or speculating or trying to make money, whatever the fuck we want to call it) is that they anchor too much to their biases.

 

Dont really have a dog in the race. I own some BTC but I bought it before everyone was having these conversations so the cost to me is negligible and the upside is free. 

[spartansaver]

6 minutes ago, Gregmal said:

The idea that something needs to generate cashflow in order to have value is one of there stupidest out there. It just needs to be desirable to others and scarce enough to produce a supply/demand imbalance. 

 

This is an $18M watch

 

https://www.businessinsider.com/paul-newman-rolex-daytona-just-sold-17-million-world-record-2017-10

 

Just because you dont think its worth that doesnt mean its not worth $18M. Same applies everywhere else. The biggest problem people create for themselves when investing(or speculating or trying to make money, whatever the fuck we want to call it) is that they anchor too much to their biases.

 

Dont really have a dog in the race. I own some BTC but I bought it before everyone was having these conversations so the cost to me is negligible and the upside is free. 

Every business valuation starts with the premise that somebody values the goods that the company sells. A cigarette company has cash flows because somebody is willing to pay $X for a carton of cigarettes. The cigarette carton on its own has some type of intrinsic value despite not being a cash generating asset. Same with almost any asset. In some cases the intrinsic value on an individual basis is largely tied to habits/needs (cigarettes, food, housing, etc.), while in other cases it is tied more tied to psychology (btc, gold, etc.). I would prefer to invest based off of intrinsic values of items that are easier to determine (habits/needs), but at the end of the day, every item has some intrinsic value. Just a different way of saying I agree with you. 

 

 

[rkbabang]

6 minutes ago, spartansaver said:

Every business valuation starts with the premise that somebody values the goods that the company sells. A cigarette company has cash flows because somebody is willing to pay $X for a carton of cigarettes. The cigarette carton on its own has some type of intrinsic value despite not being a cash generating asset. Same with almost any asset. In some cases the intrinsic value on an individual basis is largely tied to habits/needs (cigarettes, food, housing, etc.), while in other cases it is tied more tied to psychology (btc, gold, etc.). I would prefer to invest based off of intrinsic values of items that are easier to determine (habits/needs), but at the end of the day, every item has some intrinsic value. Just a different way of saying I agree with you. 

 

 

 

 

All value is subjective.  It is worth exactly what someone will pay you for it. Not one cent more or one cent less.  Take your cigarette company, yes it had earnings, but why is it worth 8 times those earnings, and not 0.5 times or 200 times or 8.2 times.  It is subjective.  Why was it 2% more expensive last month than this month, why will it be worth a different price tomorrow than today? It is subjective and worth only what someone will pay.  Same with shiny pieces of metal or a diamond, or a skyscraper, or a Bitcoin. 

[Gregmal]

9 minutes ago, spartansaver said:

Every business valuation starts with the premise that somebody values the goods that the company sells. A cigarette company has cash flows because somebody is willing to pay $X for a carton of cigarettes. The cigarette carton on its own has some type of intrinsic value despite not being a cash generating asset. Same with almost any asset. In some cases the intrinsic value on an individual basis is largely tied to habits/needs (cigarettes, food, housing, etc.), while in other cases it is tied more tied to psychology (btc, gold, etc.). I would prefer to invest based off of intrinsic values of items that are easier to determine (habits/needs), but at the end of the day, every item has some intrinsic value. Just a different way of saying I agree with you. 

 

 

Yea I definitely think its wise to anchor your core net worth type money to things you can reasonably triangulate a valuation expectation for. However if nothing else, over the years I've come to appreciate the fact that the stuff no one can value many times offers a very asymmetric return profile and if you chuck a few peanuts at it early enough in the life cycle, whether it works or not you'll probably get a few jars of peanut butter out of it. The key is to just be early and ignore the voices of reason/cynicism*** if you believe the opportunity is special, and durable enough to play out.

 

***obviously on a selective basis and with prudent position sizing. 

[wachtwoord]

On 11/1/2021 at 4:42 AM, ANP301191 said:

And yet someone has to explain to me why a dogecoin is worth what its worth beyond the greater fool theory.

 

I don't want to single you out or anything but a comment like this shows how someone who's lost. I mean unknowingly (?) you are constructing a strawman: crypto has no value because DOGE. I agree DOGE indeed has no value. If you think that says anything about Bitcoin you'd be wrong though.

 

Just because pets.com has no value doesn't mean Microsoft or Amazon doesn't.

 

On 11/1/2021 at 4:42 AM, ANP301191 said:

I can still understand utility NFTs - I can understand why someone is willing to pay 500 USD (or whatever ETH that is today) for the next generation machine gun on COD (I dont think I would do it but sure there is a business proposition here). 

 

Are there utility-nfts yet? 

[wachtwoord]

On 10/28/2021 at 11:19 PM, Parsad said:

With more and more people jumping on the crypto bandwagon, and some institutions/countries partaking in some form of participation in cryptocurrencies, is there a possible underlying systemic risk from potential losses that regulators aren't noticing? 

 

It's starting to feel like deja vu...we've seen new tools, instruments rise and create systemic risks as participants clamor for the new thing.   Junk bonds, CDS, ARM mortgages, etc...is crypto the new financial nuclear bomb?!  Cheers!

 

I doubt there's all that much wealth to be lost for 2 reasons:

 

1. You go by market cap, which especially in the scammy crypto universe is a terrible way to estimate valuation. So many of these "coins" they just create 100T of them, sell 100 and then estimate market cap to be sell price * 100T. That's clearly not right.

 

2. Even with so many outrighteous overstatements if market cap Bitcoin is still >40% of all valuations.

 

Unless of course you argue Bitcoin's worth much less than it's priced at today but then we have to agree to disagree.

[jondoug]

On 11/8/2021 at 7:53 AM, Vish_ram said:

To back to Parsad;s original question about systemic risk:

 

Crypto undercuts Fed's ability to inflate or provide liquidity. Fed's tightening action for cooling down is like pulling on a string. The transmission effect is immediate and direct. The Fed's action post or during recession is like pushing on a string. The effect takes a while to trickle down. Now imagine a case when whole country is gung-ho on crypto and Fed is injecting liquidity. This inflates, but more assets go into crypto to protect against inflation. This reduces Fed's power. The "Screw savers, reward risk takers" mode to prop up the economy is undercut. So economy may takes a whole lot of time to recover. This is a systemic risk.

 

Huge concentration of (crypto) assets in hands of few folks creates income inequality. 

 

If transfer of wealth to low-tax country is only a click away, Govt's ability to tax the rich is undercut. 

 

 

Assuming Bitcoin becomes the defacto currency, the income inequality created would be so huge, I can't think of a scenario where it can become a reality. Agreed there has always been inequality in society, but it has always had a real asset behind and ability to defend the asset - Kings with their armies or governments with the military behind it. Why would the world move towards a Bitcoin world where Satoshi or the select few who just happened to buy into it early become defacto ruling class? Will the rest of society let it happen?

 

Doesn't this make an alternate coin, without the first mover advantage, much more likely to gain acceptance? Maybe a government issued digital currency.

[TwoCitiesCapital]

47 minutes ago, jondoug said:

Assuming Bitcoin becomes the defacto currency, the income inequality created would be so huge, I can't think of a scenario where it can become a reality. Agreed there has always been inequality in society, but it has always had a real asset behind and ability to defend the asset - Kings with their armies or governments with the military behind it. Why would the world move towards a Bitcoin world where Satoshi or the select few who just happened to buy into it early become defacto ruling class? Will the rest of society let it happen?

 

Doesn't this make an alternate coin, without the first mover advantage, much more likely to gain acceptance? Maybe a government issued digital currency.

 

Not any different than current billionaires and companies today, no? I mean there are a handful of companies in the S&P that have greater value than the commerce in a number of countries. What about that system is any different than what you expect from crypto? 

 

And over the last 12 years, crypto has become increasingly decentralized while traditional finance/fiat has become increasingly concentrated. So crypto is at least moving the right direction where the existing system is not. 

[wachtwoord]

55 minutes ago, jondoug said:

Assuming Bitcoin becomes the defacto currency,

 

Bitcoin isn't a currency.

[rkbabang]

Humans don't value things or not based on social justice theories or wealth inequality preferences.  Everyone on earth is just going to say "hey that's not fair" and decide not value bitcoin.  I don't think that's how it works.

 

 

[jondoug]

1 hour ago, TwoCitiesCapital said:

 

Not any different than current billionaires and companies today, no? I mean there are a handful of companies in the S&P that have greater value than the commerce in a number of countries. What about that system is any different than what you expect from crypto? 

 

And over the last 12 years, crypto has become increasingly decentralized while traditional finance/fiat has become increasingly concentrated. So crypto is at least moving the right direction where the existing system is not. 

 

Maybe I am thinking about it the wrong way. Please correct me if I am wrong here. My assumptions:

1. If Bitcoin becomes the medium of transaction the world over, as the world GDP increases, Bitcoin's value increases as the total number of Bitcoins is limited.

2. If I hold a large chunk of Bitcoins, I (and the successors to my fortune) don't have to do anything. As the overall wealth in the world increases, my wealth will increase proportionally. Inflation doesn't matter. New technologies don't matter. My share of the wealth remains more or less the same, except for small amounts I may sell to take care of expenses.

 

Current billionaires and companies are dependent on continuing to create new wealth to keep their share of the overall wealth in society. If they and their successors don't keep up by creating an equivalent share of the new wealth, their share will decrease. 

 

So, this early mover advantage, is something the world has never seen before. Will everyone else who is not one of the early movers, especially among the current billionaires, companies and governments, let this happen?

 

[Vish_ram]

In many African countries, people are keeping their money in crypto to escape massive inflation. This is a self-fulfilling prophecy. Just people taking the control back. Even if one kind of cryptocurrency fails, a similar one will eventually win. It is a threat to status-quo.

[jondoug]

7 minutes ago, rkbabang said:

Humans don't value things or not based on social justice theories or wealth inequality preferences.  Everyone on earth is just going to say "hey that's not fair" and decide not value bitcoin.  I don't think that's how it works.

 

 

Agree on an individual level. But, wouldn't the governments and the think tanks not think this through and figure out alternatives to it. Worlcoin was one attempt in that direction: https://worldcoin.org/. I am just trying to understand the odds of Bitcoin not becoming the default cryptocurrency. 

[Vish_ram]

Bitcoin will end up being digital gold, an asset rather than a currency. It doesn't have ability to handle high vol transactions. 

 

When BTC was around 250 I considered it seriously but passed on it. I thought that the government would shut it down as it threatens USD/Fed etc. I was wrong. This is more like actions taken to control climate change. Humans cannot act until it is too late. Eventually we might have a new world order with Fed's power seriously diminished. 

You may see talks of crypto tax to ease the transition. 

 

You might even have a consortium of crypto whales who might create "Whale reserve". This capital could be used to stimulate the economy if needed, similar to what Fed does now. 

[TwoCitiesCapital]

30 minutes ago, jondoug said:

 

Maybe I am thinking about it the wrong way. Please correct me if I am wrong here. My assumptions:

1. If Bitcoin becomes the medium of transaction the world over, as the world GDP increases, Bitcoin's value increases as the total number of Bitcoins is limited.

2. If I hold a large chunk of Bitcoins, I (and the successors to my fortune) don't have to do anything. As the overall wealth in the world increases, my wealth will increase proportionally. Inflation doesn't matter. New technologies don't matter. My share of the wealth remains more or less the same, except for small amounts I may sell to take care of expenses.

 

Current billionaires and companies are dependent on continuing to create new wealth to keep their share of the overall wealth in society. If they and their successors don't keep up by creating an equivalent share of the new wealth, their share will decrease. 

 

So, this early mover advantage, is something the world has never seen before. Will everyone else who is not one of the early movers, especially among the current billionaires, companies and governments, let this happen?

 

 

I don't believe Bitcoin is an asset that increases in perpetuity until it eats the value of everything, no. And that's the only way you could sit on your hands into perpetuity and retain your proportion of global wealth. 

 

At some point it will reach the saturation point of its adoption and will be as volatile as any currency is, but on average might appreciate by a similar rate as the global population (new demand) which might become your new risk free rate. 

 

And there will be other sectors and technological developments and companies that will be doing much better than. So if they sit on their hands, they'll be slowly diluted in proportion to global wealth. 

 

Not to mention this also assumes none of their holdings are sold ever...but what is the point of wealth if you never spend any of it. 

 

Also, there will likely continue to be booms and busts and you'll likely continue to see whales speculate on those outcomes. Some will be right. Some will be wrong. And the net decentralization of BTC holdings will continue with smaller wallets making up a larger and larger portion of the network.